Over the last couple of months I went on a big shopping spree and splurged myself silly (~_~;)

$15,000 of unnecessary spending is not a very sustainable lifestyle, but at least I didn’t spend all my money in one place because that would be financially irresponsible (・_・;) When was your last shopping spree and how much did you spend? As you already know I like to be fully invested and usually don’t keep much in savings. I only managed to save up $5000 earlier this year. So where did I get the other $10,000 from to meet my $15,000 shopping binge? I borrowed it from the bank of course, at an interest rate of 4%. I know spending on credit can be a slippery slope, but I just can’t get enough of shopping centers, cell phones, and other nifty wireless gadgets ( ^^)

So let’s take a look at some of things I bought.

Name

Symbol

Yield

$/share paid

# of shares

Total Book Value

Vodafone

VOD

5.2

28

45

$1260

iShares DEX

XBB

3.3

31

63

$1953

Riocan

REI.UN

5.1

27

148

$4000

Bank of Nova Scotia

BNS

4.1

53

40

$2120

Vodafone is one of the largest and most diversified telecom operators in the world. They even own 45% of Verizon. Think about how many customers Verizon has. From April to June this year Verizon made over $1.5 Billion in profit. From now on, every time Verizon makes money, I will make money too! XBB is a straight forward bond index etf. Riocan was the first stock I ever bought. That was back in 2009 I think. The reason I’m buying more is because I want to have enough shares for a DRIP, which I finally do now. And finally Scotiabank is Canada’s most international bank with over 1000 branches in 48 different countries.

The $10,000 I borrowed from the bank was an RRSP loan. That’s why we saw a big boost to my retirement portfolio in the last Fiscal Update. So most of these companies I plan to hold until I’m 70 or older. The $10,000 I have to pay back the bank is nothing compared to the long term benefits these companies will bring me.

Those are just some of the companies I purchased but I’ve bought several others during this time too. I don’t want to make this post unnecessarily long so I will update my hedge fund some time next week so you can catch all the details there.

Calculating our net worth requires us to know the value of all our assets. But ironically our most valuable asset is always left out when determining our real wealth. I have a special type of asset which is worth even more than my apartment. But the problem is I can’t add it into my net worth statement (O_o) That’s because I’m talking about the intangible asset called human capital.

Our Human Capital is basically the present value of all our future earnings. If you are working at a dead end job making minimum wage then unfortunately your human capital isn’t worth very much. But if you’re a doctor and have the skills to save lives then you have an incredible amount of human capital. Understanding this concept is essential to creating a holistic financial plan for ourselves.

Increasing our ability to earn more money for the future, like getting hands-on work experience or completing a degree, is considered investing in our human capital. The more capable we are as a person, the more valuable our human capital becomes. Entrepreneurs and CEOs naturally have an amazing amount of human capital. Mark Zuckerberg, the creator of Facebook for example, can still live a pretty rich life even if he lost all his money today. He could file for bankruptcy and his net worth could be worth zero on paper, but no big deal. Mr. Zuckerberg can easily start working on a new project and get massive funding from investors due to his experience and past success. Even if he decides to just become a common engineer in some generic tech company he could easily make more money than most people do, because who doesn’t want to hire the Facebook guy!? His human capital alone is enough to sustain an upper-middle class lifestyle.

Everyone is born with human capitalbut not everyone is worth the same. Just like investing in financial capital, like stocks, to make it grow, we must also nurture and invest in our human capital if we want to it to grow too. Once we understand that financial capital (like our investments) and human capital (like our work experience) are really just two sides of the same coin (which is our overall economic well being,) then we can find our own balance between the two.

.

Someone who just graduated with an MBA and $100,000 of student debt may actually be in a wealthier economic situation than someone else who just received $100,000 inheritance but have never completed highschool. The first person has the tools to properly manage their debt, earn a high income, and invest their savings prudently. The second individual knows nothing about money, and could easily spend the entire windfall on frivolous things. From a net worth point of view, the second person with the inheritance is $200,000 ahead of the first guy. But if we consider the intangible assets then the first person is definitively better off. That’s the power of human capital. It’s potential is limitless 😀 So no need to be jealous next time you see someone with a bigger net worth than you. Their true worth is in their character, intellect, ability to save, experience, and all those other immeasurable traits that make up their Human Capital.

Perusing through some of my older posts I found three mini entries where I talk about how we must go through 3 increasingly difficult milestones to reach the pinnacle of financial freedom. I think it’s worth posting again to remind anyone who wants to be financially free some day to ask themselves what freedom really means to them, and then create a plan to make it happen. I’ve combined the contents of all three posts into this one entry here for easy navigation.

———————————————————–

To me, financial independence can be broken down into 3 stages.

Initial Stage:
You can quit your main job (primary source of income,) but still have to do some other kind of work, albeit less demanding, to make the same as you spend.

Example: A school teacher spends $30K/year. His rental income, part-time blogging, and investment income, adds up to $30K/year. He can quit his full time teaching job and not have to change his spending habits for the foreseeable future, assuming he continues to blog, maintains his rental property, and not sell any of his investments. Some people call this stage soft-retirement.

True Stage:
You literally don’t have to do ANYTHING to make money and still get to enjoy your current lifestyle.

Example: A school teacher spends $30K/year. His rental income from his apartment is collected by a property management company and, after fees, is directly deposited to his bank account every month. Combine this with his investment income from a balanced portfolio of high quality funds, he gets $30K/year. He can quit his teaching job and be free of any money making responsibilities.

Perpetual Stage:
Like the True Stage, except you have extra wiggle room to deal with emergencies, inflation, and unforeseen future expenses.Example: A school teacher spends $30K/year. He has a $2,000,000 income fund portfolio giving him a 5% return every year. However, he will only use 2% of this income for spending, and put the remaining 3% back into his portfolio to counter the effects of price inflation and lifestyle inflation. The 2% income he can spend is $40K ($30K for his expenses plus an extra $10K for emergencies if he needs it, or it goes back into his investments if he doesn’t.) He is now truly financially independent and can ride the ups and downs of the market and theoretically should never run out of money for as long as he lives.

Recently read and was inspired by this article to reflect on how people have changed throughout the generations, and really put things into perspective. We all know about generation Y (hey that’s me), generation X, and the Baby Boomer generation (such as my parents.) It’s no secret that we don’t always get along with each other. Boomers sometimes talk about how hard their lives are because their pensions might be cut, and they complain about how spoiled and lazy the younger generation has become today. On the other hand, people in their mid twenties are having a difficult time getting any job and complain that their parents have spent the country into debt and now the younger generation have to pick up the bill, with interest.

Well there’s one other generation I haven’t mentioned yet. We don’t talk about them much, but I think every other generation can learn a lot from them. Of course I’m talking about the Greatest Generation (people who are 88 to 111 years old today.) These people were brought up during the great depression (O_o) when unemployment was over 20% in America. Before things could get better for them WWII began and they had to go to war. And when the war finally ended they came back home and worked their butts off to make the United States into the world’s largest economy today. They were humble, hard working individuals, who understood the value of making a better life for them and their families. They sacrificed and worked harder than most people do today, without complaints. They really are the Greatest

image source: markmeynell.wordpress.com

Today’s generations (X, Y, even Z) are often saturated with whiners and excuse makers. But the Greatest Generation took responsibility into their own hands. They embraced new challenges, and simply got things done. Back then people didn’t need to buy a new car to feel good about themselves. And when they bought something they would use it until it broke. Then they would fix it themselves and continue to use it rather than buy a new one. They treated relationships the same way. That’s why divorce was uncommon. If they had marital problems they would just work it out, instead of playing mind games on each other, and then breaking up.

I have much respect for these people and thank them for all their contributions to society. I try to incorporate much of their attitudes towards material wealth, work ethic, and frugality into my own life. Our problems today are nothing compared to their’s 50 years ago. If you think your pension is in jeopardy then do something about it. I’m investing in large-cap, dividend stocks today to ultimately create my own pension plan, because the Greatest Generation didn’t rely on other people for their future financial security, so neither will I \(^_^)/

__________________________________Random Useless Fact: I took an online IQ test for fun recently. Got 130. I think that’s normal for Canadians.

What is the largest expense you have? For me, it’s taxes, which makes up about 30% of everything I make. As a democratic society we are not only responsible to pay our fair share of taxes, but we should also try to understand where our tax money goes. Did you know the CRA (IRS equivalent) uses up 3% of all our tax money? Before the next time you sit down with your accountant or pull up some tax software, have a look at these charts below showing where the federal government gets all their taxes from, and where they spend it on.

image source: creditcardscanada.ca

In today’s reality it’s common practice to want the best education for our kids and the best health care for our elderly parents, despite whether or not we have the ability to afford it or not. So if a family is already in debt and is living paycheck to paycheck, what can they do to maintain their style of living? They borrow more money of course and dig deeper into debt, just so they can pay for those services with the hope that their financial situation will get better in the future. Sounds familiar?

Canada is in a similar situation. This country is in debt. And instead of saving money each year to pay off that debt it chooses to borrow even more money to continue paying for all it’s important federal services. Our teachers and nurses are being paid by borrowed money (a loan) that every future tax payer is on the hook for. It’s a fine balance between doing what’s best for our people now, VS what’s best for the future. I would personally like to see a balanced federal budget and will gladly pay more taxes, or receive less social benefits, or some combination of both. But I know not everyone would be on board with that. Fortunately our financial situation hasn’t hit a point of no return yet. But if we continue to spend more than we make then eventually, if nothing is done about it, we might find ourselves facing the same challenges as Greece is right now. The United States also has their own financial difficulties.

Site Introduction

Freedom 35 Blog features relevant news and useful commentaries on personal finance, investing, early retirement, and passive income creation. This blog been featured on publications such as The Province, National Post, and The Globe and Mail.